INTERNSHIP
REPORT
ON
LOAN
ADVANCEMENT
PROCEDURE
OF
IFIC BANK
LIMITED
LOAN ADVANCEMENT PROCEDURE OF IFIC BANK LTD.
Submitted to
MAHMUDUL HAQ
ADVISOR
BRAC BUSINESS SCHOOL
BRAC UNIVERSITY
Submitted by
MST. NAZMUN FARZANA
ID: 09104103
BRAC BUSINESS SCHOOL
BRAC UNIVERSITY
Date OF SUBMISSION
17TH DECEMBER, 2012
LETTET OF TRANSMITTAL
17TH DECEMBER, 2012
Mahmudul Haq
Course Instructor, BBS
BRAC University
Dear Sir,
Here I present my Internship report titled “Loan And Advance Operation of IFIC Bank Limited‟
with due gratitude and appreciation. As per partial fulfillment of the requirements for the BBA
Degree, I have completed the internship from IFIC Bank Limited, Federation Branch, Motijheel,
Dhaka.
The internship program has given me the opportunity to learn about different aspects of this well
reputed organization. Before facing the corporate world, I have gathered general idea about the
organization culture and activities.
However, I have gathered all the facts that I could within this short period and have tried my
level best to exert all the things as much presentable as possible.
Yours faithfully,
……………….
Mst. Nazmun Farzana
ID: 09104103
Acknowledgement
At the beginning, I would like to express my sincere gratitude to Almighty, the most merciful
and beneficial for empowering me to prepare the report within the scheduled time.
I also want to thank especially to my internship supervisor Mahmudul Haq Sir for his inspiring
guidelines, valuable suggestion, constructive criticism and constant help throughout the work
and in preparation of this report
I also express my warm gratitude and cordial thanks to the management and officials of IFIC
Bank Limited, Federation Branch who have given me the opportunity to work with them and
helped a lot by providing the information and enabling me to prepare this report. I have received
their generous help and support.
I would like to take the opportunity to express my wholehearted gratitude to my fellow friends,
near and dear ones who offered encouragement, information, inspiration and assistance during
the course of constructing this report.
Table of Contents
Serial No.
A
B
C
D
E
1.
2.
3.
4.
Contents
Cover page
Letter of Transmittal
Acknowledgement
Table of contents
Executive Summary
Chapter 1: Introduction
1.1 Introduction
1.2 Objective of the report
1.3 Methodology of the study
1.4 Limitations of the study
Chapter 2: Company Background
2.1 About IFIC bank
2.2 Bank’s Mission
2.3 Milestones
2.4 Credit Rating
2.5 Management Structure
2.6 Organization Hierarchy
2.7 Organogram
2.8 IFIC at a glance
2.9 Main services of IFIC bank
Chapter 3: Job Description
3.1 Description of the job
3.2 Specific responsibilities
3.3 Different aspects of job performance
3.4 Critical observation
Chapter 4: Description of the report
4.1 General Banking
4.2 Credit Department
4.2.1 Lending principles of IFIC Bank
4.2.2 Sound Principles of lending
4.2.3 Credit department function
4.2.4 Direct Facilities (Funded)
4.2.5 Indirect facilities
4.2.6 Business analysis
4.2.7 Procedure for giving advance
4.2.8 Credit Assessment
4.2.9 Feasibility report
4.2.10 Credit line proposal
4.2.11 Project Appraisal
4.2.12 Risk Management
4.2.13 Loan Classification
4.2.14 Legal Framework for loan recovery
5.
6.
7
4.3 Foreign Exchange Department
Chapter 5: Performance and Ratio Analysis
Chapter 6: Findings Recommendations and Conclusion
Chapter 7: Appendix, Reference and Bibliography
Page no.
1
2-4
3
3
4
4
5-12
6
6
7
8
8
9
10
11
11
13-14
14
14
14
14
15-57
16-23
23
25
26
28
29-36
36
38
39
46
46
47
47
51
52
54
55-57
58-61
62-67
68-69
Executive Summary:
Banking system of Bangladesh has through three phases of development Nationalization,
Privatization and lastly Financial Sector Reform. IFIC Bank Limited has started its journey as a
private commercial bank on June 24, 1983.
The whole working process of Federation Branch, IFIC Bank is divided into three sections-1)
General Banking Section 2) Credit Section 3) Foreign Exchange Section. I was assigned on
credit Sections for three (03) months. So my report is based on Credit, its risk and assessment
system.
General banking is the starting point of all the operations. It is the department, which provides
day-to-day services to the customers. It opens new accounts, remit funds, issue bank drafts and
pay orders etc. provide customer through quick and sincere service is the goal of the general
banking department.
Foreign exchange department plays significant roles through providing different sorts of L/C
services like L/C opening, quicker delivery of goods L/C through SWIFT to the advising bank.
Bank credit is an important means for bringing about economic development in a country. IFIC
Bank Limited, being one of the private commercial bank of the country, has some prejudice to
finance directly on priority basis to agriculture, industry and commerce sector. Hence, it is very
clear that IFIC Bank plays an important role to move the economic wheel of the country.
CHAPTER 1:
INTRODUCTION
-2-
1.1 INTRODUCTION:
The financial system of Bangladesh consists of Bangladesh Bank (BB) as the central banks,
4nationalized commercial banks (NCB), 5 government owned specialized banks, 30 domestic
private banks, 10 foreign banks and 28 non-bank financial institutions. The Financial system also
embraces insurance companies, stock exchanges and co-operative banks. In our country
Bangladesh Bank (BB), as the central bank, has legal authority to supervise and regulate all the
banks. It performs the traditional central banking roles of note issuance and of being banker to
the government and banks. Commercial banks and domestic private banks are the profit-making
institution that holds the deposits of individuals & business in checking & savings accounts and
then uses these funds to make loans. Both general public and the government are dependent on
the services of banks as the financial intermediary. We have chosen IFIC Bank Limited as a
representative of other private banks. We have learned so many things in our course and here we
tried to relate the theories with real life situation and also find out the similarities.
1.2 OBJECTIVE OF THE REPORT
The main objective of education is to acquire knowledge. To acquired knowledge ultimately we
must do some practical application in addition to theoretical knowledge. Through this report, I
tried my level best to present my practical knowledge as well as to find out-
General:
•
•
•
•
To observe the general banking and advance operation of IFIC Bank Limited, and their
services.
How a bank operates their activities in different areas being a single organization.
What a bank is doing for Bangladesh to develop national economy.
To get an overall practical knowledge concerning banking activities as a financial
institution.
Specific:
•
•
•
•
Presentation of an introduction to the organization- IFIC Bank Limited as a whole
To get overall idea about the credit and general banking of IFIC Bank Limited.
To recommend necessary steps to overcome such problems faced by the IFIC Bank
Limited
To identify the major areas of inefficiency.
-3-
1.3 METHODOLOGY OF THE STUDY
For the implementation of the study I have worked on “IFIC Bank Limited (IFICBL)”.
In order to make the Report more meaningful and presentable, two sources of data and
information have been used widely.
The “Primary Sources” are as followsFace-to-face conversation with the respective Executives & Officers of the Bank.
•
•
Informal conversation with the clients.
Practical work exposures form the different desks of the various departments of the
Branch covered.
Relevant file study as provided by the officers concerned.
•
The “Secondary Sources” of data and information are•
•
•
Annual Reports of Standard Bank Limited.
Periodicals published by Bangladesh Bank.
Various books, articles, compilations etc. Regarding general banking functions, foreign
exchange operations and credit policies.
After collection of data, a list of table was prepared on the basis of aims and objectives of the
study and processing, editing and coding of the data were done simultaneously. The tabulated
data were then analyzed and condensed to obtain the result / objective.
1.4 LIMITATIONS OF THE STUDY:
There are some limitations in the study. I have been faced some problems during the study which
I am mentioning them. The time period of the study is very short. I had only 3 (three) months in
my hand to complete this report, which was not enough. So I could not go in depth of the study.
To prepare this report I have faced the following limitations:
•
•
Most of the time IFICBL’s employee was very busy. So they can’t provide enough
time to get information for preparing this report.
IFICBL is very new Bank, so it’s impossible to make comparison with others. So the
study is limited only on SBL.
-4-
CHAPTER 2:
COMPANY BACKGROUND
-5-
2 OVERVIEW OF IFIC BANK:
2.1 About IFIC Bank
International Finance Investment and Commerce Bank Limited (IFIC Bank) is banking company
incorporated in the People’s Republic of Bangladesh with limited liability. It was set up at the
instance of the Government in 1976 as a joint venture between the Government of Bangladesh and
sponsors in the private sector with the objective of working as a finance company within the
country and setting up joint venture banks/financial institutions aboard. In 1983 when the
Government allowed banks in the private sector, IFIC was converted into a fully fledged
commercial bank. The Government of the People’s Republic of Bangladesh now holds 32.75% of
the share capital of the Bank. Directors and Sponsors having vast experience in the field of trade
and commerce own 8.62% of the share capital and the rest is held by the general public.
2.2 Bank's Mission
Our Mission is to provide service to our clients with the help of a skilled and dedicated
workforce whose creative talents, innovative actions and competitive edge make our position
unique in giving quality service to all institutions and individuals that we care for.
We are committed to the welfare and economic prosperity of the people and the community, for
we derive from them our inspiration and drive for onward progress to prosperity.
We want to be the leader among banks in Bangladesh and make our indelible mark as an active
partner in regional banking operating beyond the national boundary.
In an intensely competitive and complex financial and business environment, we particularly
focus on growth and profitability of all concerned.
-6-
2.3 Milestones in the development of IFIC BANK
1976-Established as an Investment & Finance Company under arrangement of joint
venture with the Govt. of Bangladesh.
1980-Commenced operation in Foreign Exchange Business in a limited scale.
1982-Obtained permission from the Govt. to operate as a commercial Bank, Set up its
first overseas joint venture (Bank of Maldives Limited) in the Republic of
Maldives (IFIC’s share in Bank of Maldives limited was subsequently sold to
Maldives Govt. in 1992)
1983-Commenced operation as a full-fledged commercial bank in Bangladesh.
1985-Set up a joint venture Exchange Company in the Sultanate of Oman, titled
Oman Bangladesh Exchange Company (Subsequently renamed as Oman
International Exchange, LLC)
1987-Set up its first overseas branch in Pakistan at Karachi
1993-Set up its second overseas branch in Pakistan at Lahore
1994-Set up its first joint venture in Nepal for banking operation, titled Nepal
Bangladesh Bank Ltd.
1999-Set up its second joint venture in Nepal for lease financing, titled Nepal
Bangladesh Finance & Leasing Co. Ltd. (Which was merged with NBBL in
2007)
2003-Set up a new Bank in Pakistan, NDLC-IFIC Bank Ltd. (Subsequently renamed
as NIB Bank Ltd.) and the Overseas Branches of IFIC and a local leasing
company, NDLC were amalgamated with and into it.
2005-Acquired MISYS solution for real time online banking application
-Core Risk Management implemented
2007-Launched VISA branded Credit Card (completed full range of Cards i.e. Debit,
Credit & Prepaid by 2010)
2010-Set up Offshore Banking Unit (OBU)
2011-Established a fully owned subsidiary exchange company named IFIC Money
Transfer (UK) Ltd.
2012-Inauguration of 100th Branch at Tejgaon-Gulshan Link Road in Dhaka
-7-
2.4 Credit Rating of IFIC Bank
2010
2011
Long Term: AA3
Long Term: AA2
Short Term: ST-2
Short Term: ST-2
Definition of Rating
Have very strong capacity to meet
their financial commitments. They
differ from their highest rated
commercial banks only to a small
degree. AA2 is judged to be of very
high quality and is subject to very low
credit risk.
Have strong capacity for timely
repayment and characterized with
commendable position in terms of
liquidity, internal fund generation,
and access to alternative success of
funds.
2.5 Management Structure:
The thirteen members of the Board of Directors are responsible for the strategic planning and
overall policy guidelines of the Bank. Further, there is an Executive Committee of the Board to
dispose of urgent business proposals.
Besides, there is an Audit Committee in the Board to oversee compliance of major regulatory
and operational issues.
The CEO and Managing Director, Deputy Managing Director and Head of Divisions are
responsible for achieving business goals and overseeing the day to day operation.
The CEO and Managing Director are assisted by a Senior Management Group consisting of
Deputy Managing Director and Head of Divisions who supervise operation of various
Divisions centrally and co-ordinates operation of branches.
Key issues are managed by a Management Committee headed by the CEO and Managing
Director. This facilitates rapid decisions.
There is an Asset Liability Committee comprising member of the Senior Executives headed by
CEO and Managing Director to look into all operational functions and Risk Management of the
Bank.
-8-
2.6 Organization Hierarchy:
MANAGING DIRECTORS
SR. EXECUTIVE VICE PRESIDENT
EXECUTIVE VICE PRESIDENT
SENIOR VICE PRESIDENT
VICE PRESIDENT
SENIOR ASSISTANT VICE PRESIDENT
ASSISTANT VICE PRESIDENT
SENIOR EXECUTIVE OFFICER
EXECUTIVE OFFICER
SENIOR OFFICER
OFFICER
ASSISTANT OFFICER
TRAINEE ASSISTANT OFFICER
-9-
Fig. 01: Organization Hierarchy:
2.7 ORGANOGRAM
EVP & Relationship Manager
Managers –Operations
General Banking
Credit Relationship
Credit
Administration
Corporate
Trade
Finance
Export
Customer
Service
Documentation
SME
BAMLCO
Complianc
e Officer
Marketing
Import
Cash Selection
Monitoring
/Recovery
Retail
Accounts/Cl
earing
Fig. 02 Organization Organ gram
-10-
Remittance &
Returns
Offshore
Banking
Return
2.8 IFIC Bank at a glance:
Financial highlights
As at December 31, 2011
Serial no.
01.
02.
03.
04.
05.
06.
07.
08.
09.
10.
11.
12.
13.
14.
Particulars
Paid up capital
Total capital
Total deposits
Total loan &advances
Total liabilities
Provision of classified loan against
loans& advances
Profit after tax & provision
Provision kept against unclassified
loans
Return on equity
Return on assets
Income from investment
Earnings per share
NAV per share
Price earnings ratio(times)
2010 taka in million
2179
6714
54660
47563
63817
1323
2011 taka in million
2768
7784
73106
63558
84940
1002
1647
614
715
793
33.12%
2.37%
1313
7.63
26.37
18.81
11.60%
0.89%
1649
2.58
23.72
26.20
2.9 Main Services of IFIC Bank
The main services that are offered by IFIC bank are given below,
1) Corporate Banking: It includes
 Working Capital
Finance
 Project Finance
 Term Finance
 Trade Finance
 Lease Finance
 Syndication
Finance
2) Retail Banking:





Consumer Finance
Deposit Products
Credit Card
Debit Cards
Pre paid Cards
-11-
 NRB Account
 Student File
 SME Banking
3) SME Banking
 Easy Commercial
Loan
 Retailers Loan
 Transport Loan
 Commercial House
Building Loan
 Possession Right Loan
 Contractor's Loan
 Bidder's Loan
 Working Capital Loan
 Project Loan
 Trade Finance
 Muldhan
 Women Entrepreneur's
Loan
4) Treasury and Capital Market
 Money Market
 Forex Market
 Brokerage House
5) Agriculture Credit
 Krishi sharonjam rin
 Shech soronjam rin
 Phasali rin
-12-
CHAPTER 3:
JOB DESCRIPTION
-13-
3. Job Description
3.1 Description of the job
As an internee my I have performed numerous activities. My main task was to assist officers and
executives in every aspects of their daily work. It includes every activity that the officials
performed like dealing with posting customers, computer, document analysis etc.
3.2 Specific responsibilities of the job





Dealing with customers
Assisting employees in their day to day operations
Maintaining different registers
Computer posting of transactions
Sorting of Cheque, vouchers
3.3 Different aspects of job performance
 It helped me to learn banking activities
 It has enhanced my knowledge
 I was able to complete almost every task successfully
3.4 Critical observation
 Working environment was excellent
 Employees were very much helpful
 I learned a lot of things in a short time
-14-
CHAPTER 4:
DESCRIPTION OF
DEPARTMENTS OF IFIC
BANK
-15-
4. Description of the report
Summary
This section includes a detailed description of the three departments of IFIC Bank. They are
I.
II.
III.
General Banking
Credit, Loan and Advance
Foreign Exchange
4.1General Banking:
. General banking department is the Heart of all banking activities. It performs the core functions
of bank, operates day- to- day transactions .it is the storage point for all kinds of transaction of
foreign exchange department, loans and advances department and itself. It also plays an
important role in deposit mobilization of the branch. IFIC Bank provides different types of
account and special types of saving scheme under general banking
General banking department is divided into various sections namely as follows:
The following things done in this department:
•
Accounts opening section
•
Deposit section
•
Cash section
•
Remittance section
•
Bills and clearing section
•
Accounts sections
•
Check book issue
•
Transfer of account
•
Closing of account
•
Dispatch section
-16-
1. OPENING OF ACCOUNT:
When a person want to open an account in IFIC Bank Limited, Federation Branch, needs to
communicate with responsible officer. For opening an account a person or company must fill up
a bank account opening form and needs to present the following things:
The Procedures that the Bank follows to open an Account:
•
Fill up the specific type of form (Savings\Current\Std etc.) that the bank has given to the
customer.
•
The form should filled up by the applicant himself / herself
•
Two copies of passport size photographs have to give to the Bank. In case of partnership
account, all partners photograph have to submit.
•
Documentation procedures must be fulfilled by the applicants.
•
Applicant must sign specimen signature sheet that provided by bank.
•
Introducer is mediatory to open any account.
•
Introducer’s signature and accounts number will verify by authorized officer
•
Authorized Officer will accept the application.
•
Minimum balance has to deposit to the bank by applicant (only cash is accepted).
•
Authorized officer will give entry to the register and open the account.
•
After that the officer will give cheque book to the account holder.
•
KYC (knowledge about your customer) should maintain.
The account should be properly introduced by any one of the following:
•
An existing Current Account holder of the Bank.
•
Officials of the Bank not below the rank of an Assistant officer.
•
A respectable person of the locality well known to the Manager/Sub-Manager of the
Branch concerned.
-17-
Account Opening Procedure in a flow chart:
Application fills up the
relevant application form in the
prescribed manner.
She is required to fill up
the specimen signature
For individual introduction is
needed by an account holder
The authorized officer scrutinizes the
introduction and examines the
documents submitted.
Account is opened
Issuance of deposit slip and the
deposit must be made in cash. No
cheque or draft is acceptable to the
bank.
After depositing the cash one
chequebook and a pay in –slip
book is issued
Figure: 03
2. DEPOSIT SECTION
The term deposit of money means, to preserve money. After the consumption people want to
save some money for future uncertainty. So they deposit it to the bank. On the other hand bank is
a service organization that helps people to deposit their money for future. Bank’s main motive is
to mobilize the money and gain profit. Banks give loan to other people, they invest it and give
interest to the bank, by that the bank earns profit. By mobilizing that sum of money, not only the
individuals but also the economy is benefited.
There are four basic types of deposit are mainly used
1. Current Deposit.
2. Savings account.
3. Short term deposit (STD)
4. Fixed deposit (FDR)
-18-
3. CASH SECTION
Cash section is very much important for any bank. Without cash section, no bank can do their
activities properly. Cash section is directly related to the customer. Following tasks are made in
cash section:
•
Here the customer deposit and withdraw money.
•
Customer may receive different type of financial instrument like Prize bonds.
•
Here the customers can pay their utility bills.
•
The cash payments of any kinds of remittance (Pay order, Demand order etc.) are made
here.
4. REMITTANCE SECTION
Money transferred from one place to another through banking channel is called remittance.
Remittances of funds are one of the most important activities of the Commercial Banks.
The main instruments used for remittance of funds are:
•
Payment order (PO):
•
Demand Draft (DD)
•
Telegraphic Transfer (TT)
•
Mail Transfer (MT)
o DEMAND DRAFT (DD):
Demand Draft means money transfer from one branch to another branch of the same bank. It
may occur between the two different banks. DD issues and receives is a regular task of this
branch. In case of DD issue a branch charges commission. This commission depends on amount,
which will be transferred.
Process of DD:
When anybody want to transfer money from this branch to another branch of IFIC Bank Limited
or other bank at first the client needs to communicate with responsible officer and then he/she
collects a printed DD form. After filling this form he/she needs to deposit cash with commission
-19-
to the cash counter and takes a receipt. In case of DD four (4) copies of vouchers are prepared.
Original and duplicate copy is send to the responding branch. Triplicate copy is send to the Head
Office with daily schedule. This branch preserves the quart-duplicate copy.
o MAIL TRANSFER (MT):
Mail transfer means money transfer from one branch to another branch of the same bank. It may
occur between the two different banks. MT issues and receives is a regular task of this branch. In
case of MT issue a branch charges commission. This commission depends on amount, which will
be transferred.
Process of MT:
When anybody want to transfer money from this branch to another branch of IFIC Bank Limited
or other bank at first the client needs to communicate with responsible principal officer and then
he/she collects a printed MT form. After filling the form he/she needs to deposit cash with
commission to the cash counter and takes a receipt. In case of MT four (4) copies of vouchers are
prepared. Original and duplicate copy is send to the responding branch. Triplicate copy is send to
the Head Office with daily schedule. This branch preserves the quart-duplicate copy.
o TELEPHONE TRANSFER (TT):
Telephone Transfer (TT) means transfer of money from one branch to another branch of the
same bank through telephone message. Telephone transfer is quicker process than mail transfer.
In case of TT issue this branch charges commission. This commission depends on amount, which
will be transferred.
Process of TT:
When anybody wants to transfer money through telephone message from this branch to another
branch of the same bank he/she needs to communicate with responsible officer. At first the client
collects a printed TT form and after filling the form he/she needs to communicate with Second
Officer and then deposits cash with commission to the cash counter and finally takes a receipt. In
case of TT issues, this bank prepares three (3) copies of vouchers. Original copy is sending to the
-20-
responding Branch and the duplicate copy is sending to the Head Office with schedule. This
branch preserves the triplicate copy.
o PAY ORDER (PO):
• Pay Order gives the payee the right to claim payment from the issuing bank
• Payment is made by the Issuing branch only.
• Pay order generally used in the clearing house area.
• Payment is made by the clearing.
• Commission is charged by the issuing branch.
• The deposit may be cheque or cash.
5. CLEARING SECTION
The amount of Cheques, Pay Order (P.O), and Demand Draft (D.D) collection from other banks
on behalf of its customer is a basic function of a Clearing Department. Every working day IFIC
Bank Limited, Federation Branch, receives about 35-60 cheques that are made on another bank.
When IFIC Bank Limited, Federation Branch, receives this type of cheques then it sends these
cheques to the Clearinghouse of Bangladesh Bank through the Head Office. The Clearinghouse
is formed with the representative of every scheduled bank. IFIC Bank Limited representative
gives the cheque to the representative of respected branch on which cheque is made. After one or
two days the bank on which cheque is made sends a message about the validity of the cheque
that means it provides information about account and deposited money on this account.
Procedures of clearing follows
•
Crossing of the cheque.
•
Computer posting of the cheque.
•
Clearing seal & proper endorsement of the cheque.
•
Separation of cheque from deposit slip.
•
Sorting of cheque 1st bank wise and then on branch wise.
•
Computer print 1st branch wise & then bank wise.
•
Preparation of 1st Clearing House computer validation sheet.
-21-
•
Examine computer validation sheet with the deposit slip to justify the computer posting
•
Copy of computer posting in the floppy disk.
•
Sent to the local office.
6. ACCOUNTS SECTION
Accounts department is very important department of general banking. There are many
transactions are made in every day in bank. Here the transactions are recording properly. If there
is any fault made then the accounts section may check it and do action against it. To avoid these
mishaps, the bank provides accounts department; whose function is to check the mistakes in
passing vouchers or wrong entries or fraud or forgery. If any discrepancy regarding transaction
arises, the department report to concerned department.
7. TRANSFER OF ACCOUNT:
•
The customer submits an application mentioning the name of the branch to which the
account to be transferred.
•
The signature card, advice of new account and relevant documents are sent to that branch
through registered post.
•
The balance standing at credit in customer’s account is sent to the other branch through
Inter Branch Credit Advice (IBCA).
•
No exchange should be charged on such transfer.
•
Attention is also given in this connection.
8. CLOSING OF ACCOUNT:
A banker can close the account of the customer under the following considerable circumstances:
•
•
•
•
Death of customer
Customer’s insanity and insolvency.
Order of the court.
Specific charge for fraud forgery.
-22-
9. DISPATCH SECTION:
•
Keeping records of the documents send to other branches or banks.
•
Letters are sending to their respective destination.
•
Send those documents safely and correctly.
•
Receives documents come through different medium, such as postal service, courier
service, via messenger etc.
.
4.2 CREDIT DEPARTMENT
CREDIT RISK MANAGEMENT:
Loan and advances Credit may be defined broadly or narrowly. Broadly, credit is finance made
available by one party (lender, shareholder / owner) to another (borrower buyer, corporate or
non-corporate firm). Narrowly, credit is simply the opposite of debt. Debt is the obligation to
make future payments. Credit is the claim to receive those payments.
In perspective of IFIC Bank Limited risk is defined as the probability of losses, financial or else.
Now a day’s risk management plays a vital role to reduce uncertainty of assets and or else. The
major areas of risks are Credit Risk, liquidity risk, Market risk, Operational Risk and
Reputational Risk due to money laundering risk. Market risks include Foreign exchange risk,
Interest rate risk and Equity risk.
-23-
Credit Risk
Market Risk
Operational
Risk
Risk
Management
Liquidity
Risk
Reputation
Risk
Figure: 04 types of Risk Management of IFIC Bank Limited
-24-
4.2.1Lending principles following by IFIC Bank:
The principle of lending is collection of certain expected time tested standards, which ensure the
proper use of loan fund in a profitable way and its timely recovery. Different authors described
different principles for sound lending.
IFIC Bank follows the following seven principles in its lending activity:
1.
2.
3.
4.
5.
6.
7.
Safety
Security.
Liquidity.
Adequate yield.
Diversity.
Productive purpose.
National interest.
1. Safety:
Safety should get the prior importance in the time of sanctioning the loan at the time of minority
the borrower may not pay or may unable to [ay the loan amount. Therefore, in the time of
sanctioning the loan adequate securities should be taken from the borrowers to recover the loan.
Banker should not scarify safety for profitability.
IFIC Bank limited exercises the lending function only when it is safe and that the risk factor is
adequately mitigated and covered. Safety depends upon
•
•
The security offered by the borrower and
The repairing capacity and willingness of debtor to repay the loan with
interest.
2. Security:
Banker should be careful in the selection of security to maintain the safety of the loan. Banker
should properly evaluate the proper value of the security. If the estimated value less than or equal
to loan amount, the loan should be given against such securities.
3. Liquidity:
Banker should consider the liquidity of the loan in the time of sanctioning it. Liquidity is
necessary to meet the consumer need.
4. Adequate yield:
-25-
The banker should consider the interest rate when go for lending. Always banker should fix such
an interest rate for its lending which should be higher than its saving deposits interest rate.
5. Diversity:
Banker should minimize portfolio risk by putting its fund in the different fields. If banker put its
entire loan able fund in one sector it will increase the risk. So if it faces any problem in any
sector it can be covered by the profit of another sector.
6. Productive purpose:
IFIC Bank exercises its lending function only on productive purpose.
7. National or social interest:
IFIC Bank also considers national aspect of any project while financing .they take utmost care so
that the project can’t be detrimental to the society as well as to the nation.
4.2.2 Sound Principles of Lending:
Sound principles of lending are obvious to avoid loan default tendency and risk elements to
safeguard of public money as well as business of a bank.
So, there must be a principle of advance and efforts should be made to make it a sound one for
which in depth study must be made on the following points of the bank:







When loan is to be given.
Why loan is to be given.
How the loan is to be given.
What may happen after disbursement of the loan?
Generally what happen (from past experience) after disbursement if the loan.
It is hopeful that the borrower will repay the loan.
Whether the loan should be given only the private sector or also in government sector as
well.
 Whether only secured loan will be extended or provision should be kept for clear loan also.
 Whether only short term and midterm loan should be considered or long term will be
considered.
-26-
CAMPARI
1. Character
2. Amount of loan
5 C’s
3. Means of repayment
1. Character
4. Purpose of loan
2. Capacity
5. Accountability
3. Capital
6. Risk
4. Collateral
7. Insurance
5. condition
Credit worthiness of
the loan applicant
5 R’s
1. Responsibility
2. Resources
PARSAR
1. Purpose
5 M’s
2. Amount
1. Man
3. Reason
2. Motive
4. Source of repayment
5. Ability
6. Risk
3. Reliability
4. Return possibility
5. Risk
3. Money
4. Market
5. Modification
(Monetary bank’s
grand)
-27-
Fig: 05 Credit worthiness of the loan applicant
4.2.3 Credit Department:
One of the primary functions of commercial bank is sanctioning of credit to the potential
borrowers. Bank credit is an important catalyst for bringing about economic development of a
country. Without adequate finance, there can be no growth or maintenance of a stable economy.
Bank lending is important for the economy, because it makes possible the financing of
agriculture, commercial and industrial activities of a nation. Hence, it is very clear that, IFIC
Bank plays an important role to move the economic wheel of the country.
There are different types of loan, which is provided by the bank, but those are the collective form
of the following item.
Loan & advance
of IFIC Bank
working capital
Cash credit
Overdraft
Figure:06 Types of loan and advance of IFIC Bank
-28-
Bills (P&D)
4.2.4 Direct facilities (Funded):
The different types of loans and advance that ICIC Bank offers are as follows
1. Secured Overdraft (SOD)
It is a continuous advance facility by this agreement; the banker allows his customer to overdraft
his current account he withdraws, to his credit limits sanctioned by the bank. The interest is
changed on the amount, which not on the sanctioned amount. IFIC bank sanctions SOD against
different security.
Types of secured overdraft:
SOD
SOD
General
SOD
(FO)
SOD Export
a) SOD (General):
Advance is granted to a client against the work order of government of departments, corruptions,
autonomous bodies and reputed multi-national / private organization. The clients’ managerial
capability, equity strength, nature of the scheduled work is judged to arrive at a logical decision.
Disbursement is made after completion of documentation formalities. Besides usual charge,
documents like a notarized irrevocable power of attorney to collect the bills from the concerned
authority and a letter from the concerned authority confirming direct payment to the bank is also
obtained. The work is strictly monitored to review the progress at each interval.
-29-
b) SOD (FO):
Advance is granted to a client against financial obligations. The security of advance is granted to
the person to whom the instrument belongs. The discharged instrument is surrounded to the bank
along with a letter signed by holder /holders authorizing the bank to appropriate the proceeds of
the instrument on due date towards the repayment of the advance. The bank’s lien is prominently
noted face of the instrument under the signature of an authorized bank official. The instrument is
issued by another branch of IFIC Bank limited or any branch of some other bank, and then the
concerned branch in each intimated to lien mark the instrument.
c) SOD (Export):
Advance allowed to purchasing foreign currency for payment against L/Cs (Back-to –Back)
where the exporter cannot materialize before the date of import payment.
2. Cash credit:
Cash credit (CC) is an arrangement by which a banker allows his customer to borrow a money
up to a certain limit.CC is a favorite mode of borrowings by traders, industrials etc. for meeting
their working capital requirements.
Cash credit or continuous credit are those, which forms continuous debits and credits up to a
limit and have an expiration date. A service charge that in effect of an interest charge is normally
made as a percentage of the value of purchases.
Cash credit is generally allowed against hypothecation or pledge of goods. Hence cash credits
are two types:
a. Cash credit hypothecation
b. Cash credit pledge.
30th March 2012
30th June 2012
30th September 2012
1247433446
1306508176
1251594368
Quarterly Cash Credit of IFIC Bank, Federation Branch
-30-
a). Cash credit hypothecation:
Cash credit allowed against hypothecation of goods is known as cash credit hypothecation. In
case of hypothecation, borrower retains the ownership and possession of goods on which charge
of the lending bank is created.
b) Cash credit pledge:
Under this arrangement a cash credit is sanctioned against pledge of goods or raw materials. By
signing the letter of pledge, the borrower surrenders the physical possession of the goods under
the banks effective control as security for payment of bank dues. The ownership of the goods,
however, remains with the borrower.
3. L I M (loan against imported merchandise):
When the importer failed to pay payable to the exporter against import L/C, Then IFICBL gives
loan against imported merchandise to the importer. This is also a temporary advance connected
with import, which is known as post import finance.
4. Working capital:
Loans allowed to the manufacturing units to meet their working capital requirement, irrespective
of their size big, medium or large, fall under category.
5. Export credit:
Credit facilities allowed facilitating export against L/C fall under this category. It includes loan
against packing credit (LAPC), Foreign Documentary Bills Purchased (FBDP) ETC.
6. LTR (LTR)
-31-
This is an arrangement under which credit is allowed against trust receipt and imported or
exportable goods remain in the custody of the importer or exporter but he is execute a stamped
trust receipt in favor of the bank where a declaration is made the goods imported or bought with
the banks financial assistance are held by him in trust for the bank.
7. Local Bills Purchased Documentary:
Payment made against documents representing sell of goods to local export oriented industries,
which are deemed as exports, and which are denominated in local currency/foreign currency falls
under this head. The bill of exchange is held as the primary security. The client submits the bill
and the bank discounts it. This temporary liability is adjustable from the proceeds of the bills.
8. Loan against Other Securities:
Loan against other securities is a 100%secured advance, which requires no sanction from the
Head Officer. It is sanctioned by making lien on FDR.ICB Unit certificate etc.
9. Term loan:
IFICBL considers the loans, which are sanctioned for more than one year as term loan. Under
this facility, an enterprise is financed from the starting to its finishing like as from installation to
its production. IFICBL offers this facility only to big industries. Interest rate is 15.50%.
The loan term as follows:
a. Short term: up to and including 12 months.
b. Medium term: more than 12 months up to and including 60 months.
c. Long term: more than 60 months.
10. Overdraft:
A consumer having current is accommodated by overdraft facility against security. permission is
given to overdue current account up to sanctioned limit is continuous revolving credit and the
borrower may operate any number of times within sanctioned up to validity period of limit
-32-
interest is charged on debit balance of daily products. It is a short –term credit arrangement and
renewable.
11. Consumer Credit Scheme:
The scheme is aimed to attract consumer from the middle and upper middle class population
with limited income. The borrower should have an account with the bank. Minimum 25%of the
purchase cost of the product is to be deposited by the borrower with the bank as equity before the
disbursement of the loan. The rest 75%is to be kept as cash collateral (FDR) with the bank.
12. Staff loan:
Bank official from senior officer and above is eligible for this loan .the maximum amount
disbursed for a period of 25 years .The rate of interest is 8%per annual staff loan categorized in
two ways:
a. Staff House Building Loan (SHBL)
b. Staff Loan against Provident Fund (SPF)
a. Staff House Building Loan (SHBL):
 150 times of the basic salary is provided as SHBL.
 15.50%, interest is charged to the employee.
 Repayment is adjusted from their monthly salary.
30th March 2012
30th June 2012
30th September 2012
186187638
200818715
215306023
Quarterly SHBL disbursement of IFIC Bank, Federation Branch
-33-
SHBL
22000000
21000000
20000000
19000000
SHBL
18000000
17000000
30th March
2012
30th June
2012
30th
September
2012
Graph 01: Quarterly SHBL disbursement of IFIC Bank, Federation Branch
b. Staff Loan against Provident Fund (SPF):




30th March 2012
11092747
10%, of basic is contributed by employee in every month.
10% of basic is also contributed to the PF by the Bank.
Repayment is adjusted from their monthly salary.
Maximum sanction from PF.
30th June 2012
10019012
30th September 2012
9568295
PFD
11500000
11000000
10500000
10000000
9500000
9000000
8500000
PFD
30th March 30th June
2012
2012
30th
September
2012
Graph02: Quarterly provident fund disbursement of IFIC Bank, Federation Branch:
-34-
Provident fund contribution:
1-5 years of confirmed service
5-7 years of confirmed service
7-10 years of confirmed service
Above 10 years of confirmed service
50%
60%
70%
80%
Own contribution
Total contribution
Total contribution
Total contribution
13. House building loan:
The loan is provided against 100%cash collateral. Besides, the land and building are also
mortgaged with the bank. Rate of interest is 15.50%.
House building loan (CF):
This loan is provided against 100% cash collateral. Alongside, the land and building are also
mortgaged in the bank. Rate of interest is 15.50%.
30th March 2012
30th June 2012
30th September 2012
2843104
2433429
2253445
HBL
3000000
2500000
2000000
1500000
1000000
500000
0
30th March
2012
30th June
2012
30th
September
2012
HBL
Graph 03: Quarterly HBL (CF) disbursement of IFIC Bank Federation Branch
-35-
14. Bid Bond:
Generally it issued while dropping tender for work.
15. Performance bond:
It is issued when customer gets specified work-order .here bank guarantees that his customer is
willing and able to complete the required work, and bank takes the responsibilities of completing
the contracted work.
16. Loan against PSS:
Loan against PSS is the loan that is provided against PSS fund that also called DPS by other
bank.
 This loan is provides against PSS fund.
 100% are given of the PSS fund.
 This is 100% secured for the bank.
17. Industries loan:

It is a term loan.

It is given for three years at equal installment.

Gross period is allowed of these types of loan.

Gross period is the period that requires earning visible returns.
4.2.5 Indirect Facilities:
1. Guarantee:
A credit facility provided in contingent liabilities form, extended by the banks to their clients, for
participating in development work like supply of goods and services.
IFIC Bank offers three types of guarantee as follows:
-36-
a. Tender or Bid bond guarantee:
The tender guarantee assures the tender that tender shall uphold the conditions of his period of
the offer as binding and he will also sign the contract in the event of the order being guaranteed.
b. Performance guarantee:
A performance guarantee expires on the completion of the delivery or performance. Beneficiary
finds that as a guarantee, the contract will be fulfilled in every respect and can retain the
guarantee as per provision for long time. Including a clause starting that the supplier can claim
under the guarantee, by presenting an acceptance certificate signed by the buyer can counteract
this.
c. Advanced payment guarantee:
This type of guarantee is given against work order. This idea can be made clear with the help of
an example. Before the beginning of Jamuna Bridge construction, the government collected
money from different sources to pay the contractors in advance. But there was a risk for the
government that the contractor might not do their construction work even they were paid in
advance. So the government asked bank guarantee from them. Then the contractor submits the
bank guarantee to the government. This type of guarantee is called advanced payment guarantee
2. Letter of credit:
A credit facility in contingent liabilities form provided to the clients by the banks for import /
procurement of goods and services.
-37-
4.2.6 Business analysis:
Business analysis is done from two angles –term, conditions and collateral securities:
Interest rate in Loan and Advance:
Types of advances
Secured
(SOD)
NEW Interest rate
Overdraft 15%
Loan (General)
Old Interest rate
14%
15.50%
14%-16%
House Building Loan 12
(Staff)
8%-10%
House Building Loan 24
(General)
14%-16%
Transport Loan (Staff)
14%-16%
Transport
(General)
32
Loan 17
14-16%
SOD
16
14%-16%
Industrial Credit
22
12.5%-16%
Cash credit
18
13%-16%
Trust 15
13%-15%
(Hypothecation)
Loan against
Receipt (LTR)
-38-
4.2.7 Procedure for giving advance:
First step:
The potential borrower will submit application to SBL for loan by filling up of a specific
Application form. The Application form (request for Credit Limit) contains following
particulars:
a) Name of the Borrower----b) A/C No.------------c) Bunnies address (with telephone no.) [Residential address and Permanent address]------d) Introducer’s name, A/C no. & address----e) Date of establishment/ incorporation-----f) Trade license number, date and expiry date (Photocopy of trade license enclosed)------g) GIR/TR no. & amount of income tax paid last year-----h) Constitution/ Status (Mention whether sole proprietorship/ partnership/ Public Ltd.
company/ Private Ltd. company)-------i) Particulars of individual/ Proprietor/ Partners/ Directors (Name & Designation,
father’s/ Husband’s name, present & permanent address with Telephone no., % of
shares held)------j) Experience and background of Individual/Proprietors/ Partners/ Directors-------k) Full particulars of assets in the personal name of Individual/ Proprietor/ Partners/
Directors with valuation----------l) Names of Subsidiaries/ Affiliates, percentage of share holding and nature of
business--------m) Nature and details of business/ products (for which credit facility is applied for),
Markets (Present market price per unit, Factory price), Estimated sales for next one
year............
-39-
n) Credit facilities required (type, amount, period, purpose, and mode of
adjustment)..........
o) Details of securities offered with estimated value (Primary security, Collateral
security, market value of the security)..........
p) Details of liabilities in the name of the client or in the name of any other
partners/Directors or Subsidiaries/Affiliates Nature of advance, amount, security and
validity of limit).....
q) Balance Sheet/ Income Statement of Statement of Accounts of the following years
attached (Preferably last 3 years)........
r) Other relevant information.........
s) Proposed debt/equity ratio.........
t) Signature of the Applicant..............
Step 2:
After receiving the loan application form, Federation Branch sends a letter to Bangladesh Bank
for obtaining a report from there. This report is called CIB (Credit information Bureau) report.
This report is usually collects this report if the loan amount exceeds Tk. 50 Lac. But SBL usually
collects this report if the loan amount exceeds Tk.10 Lac. The purpose of this report is to being
informed that whether the borrower has taken loan from any other bank; if ‘yes’ then whether
these loans are classified or not.
Step 3:
After receiving CIB report if the Bank thinks that the prospective borrower will be a good
borrower, then the bank will scrutinize the documents. In this stage, the Bank will look whether
the documents are properly filled up and signed.
-40-
Step 4:
Then comes the processing stage. In this stage, the Bank will prepare a Proposal a proposal
contains following relevant information:
a) Name of the Borrower--b) Nature of Limit----c) Purpose of Limit-----d) Extent of Limit--e) Security--f) Margin--g) Rate of Interest------h) Repayment------i) Validity------
Federation Branch has the discretionary power to sanction loan (SOD) up to Tk.25 Lac against
financial obligations by taking post-facto approval from Head Office. But in that case, the
Branch Manager has to give attention to the following matters:
 The interest rate of the loan must not be less than prescribed rate of interest or 15.5%
 The borrower must maintain minimum 20% margin.
Except this case, the branch has to send the proposal to the Head Office. Head Office will
prepare a minute and submit it before the Executive Committee (EC). The minute has to be
passed by Credit Committee (CC) and the Executive Committee (EC) and lastly to the Board of
Directors (BOD) Meeting.
-41-
Step 5:
After the sanction advice, Bank will collect necessary documents (charge documents). These
documents are given below:
A.)Loan (general):
a) Joint Promissory Note
b) Single Promissory Note
c) Letter of Undertaking
d) Loan Disbursement Letter
e) Debit Figure Confirmation Sheet
f) Letter of Continuity
g) Letter of Authority
h) Letter of Revival
i) Right of Recall the Loan.
j) Letter of Guarantee
k) Letter of Indemnity
l) Trust Receipt
m) Hypothecation of Goods
n) Hypothecation of Vehicles
o) Counter Guarantee
p) Letter of Lien
q) Letter of Lien in case of advance against FDR
r) Letter of Authority to encase FDR
s) Letter of Agreement for Packing Credit
t) Letter of Guarantee for opening L/C
u) Charges over Bonds or Certificates or shares etc. by third person, firm or company to
secure specific and general liability.
v) Memorandum of Deposit of Title Deeds
w) Hypothecation of goods to secure a Demand Cash Credit Or Overdraft/Loan amount
x) Guarantee by Third party.
-42-
Step 6:
Charge documents as required for the different types of advances, are mentioned below:
A).Loan (general):
•
D.P note signed on revenue stamp
•
Letter of arrangement
•
Letter of disbursement
•
Letter of partnership
•
Letter of pledge
•
Letter of hypothecation
•
Letter of lien and ownership
•
Letter of lien for packing credit
•
Letter of lien
•
Letter of lien and transfer authority
•
Legal documents for mortgage property
B).Overdraft:
 D.P note
 Letter of partnership
 Letter of arrangement
 Letter of continuity
 Letter of lien
 Letter of lien and ownership
 Letter of lien and transfer authority
-43-
C).Cash credit (pledge):
 Letter of pledge
 Letter of authority empowering the bank to deduct / realize warehouse, staff
salary and other incidental expense for inspection, maintenance of goods etc.
 Letter of declaration handing over the possession of goods stored or to be stored
in the warehouse against the facility.
 Letter of disclaimer in case of Hired go down signed by the owner of the
warehouse.
D).Cash credit (Hypothecation):
 Letter of hypothecation.
 Letter of authority empowering the bank to inspect goods and possession
of the goods in case of duly drafted by the lawyer of the bank.
 Stock report duly signed by the borrower on fortnightly basis or after
every deposit in the loan account or before realizing fund against limit.

Letter of declaration duly signed by the party clearly starting that the
goods hypothecated are not in any case encumbered elsewhere.
 Sufficient insurance cover inserting the name of the Bank as mortgage
with bank mortgage clause.
Step 7:
For withdrawing the loan amount, the customer creates a CD account and the loan is transferred
to the CD A/C. Afterwards the customer can withdraw the money.
Step 8:
Credit disbursement:
-44-
After verifying all the documents, the branch disburses the loan to the borrower. The loan officer
disburses the loan to the borrower loan account. A “Loan Repayment Schedule” is also prepared
by the branch and is given to borrower.
Step 9:
After the disbursement of loan, the bank follows the following manner:
 Constant supervision.
 Working capital assessment.
 Stock report.
 Break Even analysis.
 Rescheduling of repayment.
Step 10:
The loans are repaid in installment. This installment is according to bank directives. Some loans
are repaid all at a time. If any loan is not repaid then notices are served to the customer.
Sometimes legal actions are also taken for recover the loan.
-45-
4.2.8 Credit assessment:
A through credit and risk assessment should be conducted prior to the granting of a facility, and
at least annually thereafter for all facilities. The results of the assessment should be present in a
Credit Application that originate from the relationship manager or account officer (“RM”) ,and
probable mitigation of risks. The RM should be the owner of the customer relationship, and must
be to ensure the accuracy of the entire credit application submitted for approval. Credit
assessment includes,
a). Borrower analysis:
The majority shareholders, management terms and group or affiliate companies should be
assessed. Any issues regarding lack of management depth, complicated ownership structures or
inter-group transactions should be addressed and risks mitigated.
b).Industry Analysis:
The key risk factors of the borrower’s industry should be assessed. Any issues regarding the
borrower’s position in the industry, overall industry concerns or competitive forces should be
addressed and the strengths and weakness of the borrower relative to its competition should be
identified.
c).Supplier/ buyer analysis:
Any customer or supplier concentration should be addressed, as these could have a significant
impact on the future viability such as:
4.2.9 Feasibility Report
This report is from borrower’s point of view. He prepares this report and submitted to the bank.
-46-
4.2.10 Credit Line Proposal:
In this step of the term loan the branch sends a credit line proposal to the head office for approval
of the term loan. The credit line proposal contains the following particulars:
 Fresh/Renewal/Revision of the term loan
 Borrower name
 Types of business
 Capital structure
 Particulars of previous transaction
 Existing vis-à-vis proposed credit limits
 Movement of the accounts
 Liabilities of sister concerns
4.2.11 Project Appraisal:
It is the reinvestment analysis done by the banker before a project he approved. Project appraisal
in the banking sector needed for the following reasons:
 To justify the soundness of an investment
 To ensure repayment of bank finance
 To achieve organizational goals
 To recommend if the project is not designed properly.
Techniques of Project Appraisal:
An appraisal is a systematic exercise to establish that the proposed project is a viable preposition.
The appraising officer checks the various details submitted by the promoter in first information,
sheet credit application form, and feasibility report. SBL considers the following aspects in
appraising:
-47-
i. Entrepreneur
ii. Technical Viability
iii. Commercial Viability
iv. Financial viability
v. Economic Viability
vi. Management and organizational Viability
(1) Entrepreneur:
Entrepreneur/ promoter have to be creditworthy and competent enough to run the proposed
industry.
•
Preference given for educated / knowledgeable sponsors, who know about their business
concern, have technical know and expertise in the field of proposed industry.-Who have
own land and building for running project
•
Have experience in working abroad
•
Sponsors with innovative ideas
•
Sponsors must have net worth more than 2.5 time of the equity required for investment in
the project
•
Who have good dealings with the bankers/ outside parties and has social contacts and
standings.
•
Have an A/C with SBL
•
Sponsors requiring group funding may be given financial assistance provided for each
other, etc.
The Project should be viable from organizational, technical, commercial, financial and
economic points of view.
(b) Technical Viability:
It implies the assessment of various requirement of actual production process. It involves a
critical study of following factors:
-48-
•
Location and site of the project:
 Selection of the optimum location, therefore, revolves around the joint
consideration and evaluation of the following factors Raw materials supplies
 Transportation facilities
 Power, water and fuel supply
 Manpower
 Natural and climate factor

Size of the plant/project

Technology, plant & equipment-the study should consider some important
technological factors with regard to plant and equipment, viz:
 Adequacy and suitability of the plant & equipment and their specification
 Plant layout
 Balancing of different sections of the plant
 Reputation of the machinery supplies, etc.
 Building and layout-the operative efficiency of industrial project also depend on
the layout.
(c) Commercial Viability:
This study indicates emulation of a project’s feasibility in terms of market. The market analysis
contains:
•
Analysis of past and present demand
•
Analysis of past and present supply
•
Estimate future demand of the project
•
Estimates project’s share in the market, etc.
•
Marketing channel for the product should accessible to the entrepreneur.
-49-
(d) Financial viability:
Analysis of financial viability is an essential part of project appraisal. The financial analysis
focuses the following for judging this viability.
Cost of the project and means of finance: It is necessary to make a preliminary assessment of the
project and the means of the financing it. If the cost of the project is too high that is not possible
to mobilize the resources of that magnitude through the available resources, the project is out
question.
•
Investment profitability analysis: several capital budgeting techniques are used for
judging profitability.
•
Financial ratio analysis.
•
Break-even analysis.
•
Debt service coverage ratio should be at least 2.5 times at the optimum level of
production.
•
IRR should preferably be not less than 20 percent.
(e) Economic Viability:
The project should ensure benefit to the national economy and create sufficient opportunity
in the following areas:
•
Generation of employment.
•
Income distribution
•
Self-reliance
•
Development of small-scale industries & ancillary business
•
Improvement of quality of life and well being
•
Environmental issues
•
Opportunity cost
-50-
(f) Management and organizational Viability:
It is very much important for the success of a project. Because, if the management is incompetent
a good project is become failed so it is necessary to evaluate the following things;
•
Overall background of the promoter
•
Their academic qualification
•
Business and industrial experience
•
Their past performance
The appraisal generally can cover up to six aspects of a project. The following flow chart may be
used for selection of a good project.
4.2.12 Risk Management
A) Historical financial analysis:
Preferably an analysis of minimum 3 years historical financial statements of the borrower should
be presented. The analysis should address the quality and sustainability of earnings, cash flow
and strength of the borrower’s balance sheet.
B) Credit risk grading:
The credit risk grading (CRG) is a collective definition based on the pre-specified scale and
reflects the underlying credit-risk for a given exposure. A credit risk grading deploys a number
/alphabet /symbol as a primary summary indicator of risks associated with a credit exposure.
Credit risk grading is the basic module for developing a credit risk management system.
Function of credit risk grading:
Well –managed credit risk grading systems promote bank safety and soundness by facilitating
informed decision making. Grading system measures credit risk and differentiate individual
credits and groups of credit by the risk they pose. This allows bank management and examiners
-51-
to monitor changes and trends in risk levels. The process also allows bank management to
manage risk to optimize returns.
4.2.13 Loan classification:
Loan classification is a process by which the risk or loss ;potential associated with the loan
accounts of a bank on a particular date is identified and qualified to measure accurately the level
of reserves to be maintained by the bank to provide for the probable loss on account those risky
loan. Like other banks, all types of loans of IFICBL fall into following four scales:
 Unclassified:
Repayment is irregular.
 Substandard:
Repayment is stopped or irregular but has reasonable prospect of improvement.
 Doubtful debt:
Unlikely to be repaid but special collection efforts may results in partial recovery.
 Bad /loss:
Very little chance of recovery.
Classification 1st phase
stats
Unclassified
Substandard
Doubtful
Bad/loss
Frequency of
classification
1%
10%
50%
100%
Annual
2nd phase
3rd phase
4th phase
5th phase
1%
10%
50%
100%
Half yearly
1%
15%
50%
100%
Half yearly
1%
15%
50%
100%
Quarterly
1%
20%
50%
100%
Quarterly
Loan Classification Stats
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Classification procedure:
The classification procedure is done as per the central bank’s instructions in B C D circular
No.34 of 1989, B C D circular NO.20 of 1994. The loans are classified based on following
criteria.
Classification criteria:
1. Overdue criteria (OD):
Term loans became overdue whenever an installment is not received within 3 months of the
normal date of repayment for private sector loans and 6 months in case of public sector loans.
Continuous type of loans, if not renewed, becomes overdue on the date of expiration of the loan.
Classification status of a loan account is determined based on the length of overdue period.
2. Qualitative criteria:
In addition to the above mentioned criteria loans
3. Special condition:
There are certain special conditions set out in this circular which require classification even
though a loan may not be overdue.
4. Inspecting department instruction:
Regardless of the above Bangladesh Bank’s inspecting department may change the bank’s
classification of any loan.
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4.2.14 Legal framework for loan recovery:
After being classified, if the borrower unable to adjust the loan then the bank can take following
legal actions by filling suit
1. Filling certificate cases under Public Demand Recovery Act-1913.
2. Filling money suit cases under Artha Rin Adalat-1990.
3. Filling Bankruptcy cases under Bankruptcy Act -1997.
4. Filling cases under Negotiable Instrument Act -1881 section 138 to 141 for insufficient fund.
(In case of term loan).
Some problems of recovery:
 Exemption of interest by govt. / bank.
 Exemption of loan including interest by govt.
 Political pressure and misunderstanding.
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4.3 FOREIGN EXCHANGE DEPARTMENT OF IFIC BANK
One of the largest businesses carried out by the commercial bank is foreign trading. The trade
among various countries falls for close link between the parties dealing in trade. The situation
calls for expertise in the field of foreign operations. The bank, which provides such operation, is
referred to as rending international banking operation. Mainly transactions with overseas
countries are respects of import; export and foreign remittance come under the preview of
foreign exchange transactions. International trade demands a flow of goods from seller to buyer
and of payment from buyer to seller. In this case the bank plays a vital role to bridge between the
buyer and seller.
Foreign Exchange Department is an international department of the bank. It deals
with globally and facilitates international trade through its various modes of services. It bridges
between importers and exporters. Bangladesh Bank issues license to scheduled banks to deal
with foreign exchange. These banks are known as Authorized Dealers. If the branch is
authorized dealer in foreign exchange market, it can remit foreign exchange from local country
to foreign country. This department mainly deals with foreign currency. This is why this
department is called foreign exchange department.
Some national and international laws regulate functions of this department. Among these,Foreign
Exchange Act, 1947 is for dealing in foreign exchange business, and Import and Export Control
Act, 1950 is for Documentary Credits. Governments’ Import and Export policy is another
important factor for import and export operation of banks
Function of Foreign Exchange Department
Foreign
Exchange
Operation
Import
Export
4.3.1 EXPORT
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Foreign
Remittance
Activities under the export section includes,
 Pre – Shipment advances
 Purchase of foreign bills
 Negotiating of foreign bills
 Export guarantees
 Advising/ confirming letters – letter of credit
 Advance for deferred payment exports
 Advance against bills for collection
4.3.2 IMPORTS
Activities under the import section includes
 Opening of letter of credit (L/C)
 Advance bills
 Bills for collection
 Import loan and guarantees
4.3.3 REMITTANCES
Activities under the import section includes
 Issue of DD, MT, TT, etc.
 Payment of DD, MT, TT etc.
 Issue and enhancement of traveler’s cheque
 Sale and enhancement foreign currency note
 Nonresident accounts
DEALINGS
 Rate computation
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 Maintenance of foreign currency account
 Forward contracts
 Exchange position and cover operations
Most Commonly Used Documents in Foreign Exchange
 Documentary letter of credit
 Bill of exchange
 Bill of Landing
 Commercial Invoice
 Certificate of origin of goods
 Inspection certificate
 Packing List
 Insurance certificate
 Pro-forma invoice/ indent
 Master receipt
 GSP certificate
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CHAPTER 5:
PERFORMANCE AND
RATIO ANALYSIS
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5. Performance and Ratio Analysis
1. Financial Leverage
Total Debt to Asset ratio
2011
2010
84939645093/91507538272
63816731502/69565198532
0.9282257
0.9173658
84939645093/6567893180
63816731502/5748467030
12.932556
11.101522
91507538272/6567893180
69565198532/5748467030
13.932556
12.101522
0.9256877
0.7095591
7.68
2.53
Dividend payout ratio
35.39
116.28
Price Earnings ratio
18.81
26.2
ROA
2.37%
0.89%
ROE
33.12%
11.60%
Total Debt to Equity ratio
Equity Multiplier
2.Liquidity ratio
Current ratio
3. Shareholder ratio
EPS
4.Return ratio
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Performance Graphs
 Shareholders’ equity
 Earnings Per share
 Price earnings ratio
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 Capital Adequacy ratio
 Dividend
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CHAPTER 6:
FINDINGS,
RECOMMENDATIONS,
CONCLUSION
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6.1 Findings
While working at International Finance Investment & Commerce Bank Limited, in Federation
Branch I have attained a newer kind of experience. After collecting and analyzing data I have got
some findings and recommendations. These findings are from the personal points of view, which
are given below:
•
Online banking system is available in IFIC Bank that is very important to compete to
others in the electronic world.
•
For credit appraisal, the bank some time depends on the client for its authentication.
•
All the employees are not professionally trained enough in the computer literacy part.
•
It can be said IFIC Bank is much more a businessmen’s bank than for the consumers
or general public’s.
•
In case of opening an account, some big parties are come to open accounts in
reference with the high officials of the bank. They do not submit all papers that
required opening an account and in future they do not feel any urge to submit those
papers, but already they become accounts holder. I think in this case the authority is
violating the rule.
•
Most of the borrower does not pay their payment timely.
•
Most of the clients are under graduate and unable to understand the term and
conditions, as a result they fail to understand that when they have to repay the loan,
even after repeating them again and again the schedule of their repayment.
•
Every time the bank has incurred a very big bad debt because of irresponsibility of
employees.
•
Loans and advance department take a very long time to sanction a loan; as a result
they are losing the clients.
•
Sometimes the employees overvalued the mortgage property, As a result if the client
fails to repay the loan the bank authority cannot collect even the principal money
invested by the selling those assets.
•
Some tomes CIB reports are not prepared properly.
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SWOT Analysis
STRENGTHS








WEAKNESS





Good position in bank world.
Usage of MISYS bank software.
Efficient management.
Cooperation with each other.
Usage of SWIFT technology.
Good banker-customer relationship.
Strong financial position.
Energetic as well as smart force.
Reluctance to marketing campaign.
Existing of manual vouchers.
Lack of power.
Lack of computer skilled manpower.
Employee is not professionally trained
enough.
 Existence of classical loan .(about 2.5%
of total loan)
OPPORTUNITIES







THREATS
Launching ATM card.
Huge business area.
Growth of sales volume.
Change in political environment.
Offer Money Gram facility.
Also offer Customer facility.
The management can consider options
of starting merchant banking or
diversity of leasing and insurance.
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 Poor economical condition of our
country.
 Entrance of new private commercial
banks.
 Different attractive service offered by
some foreign banks.
 Daily basis interest on deposit offered
by some multinational banks.
 Existing card service of different banks.
6.2 Recommendations
Banking is a service –oriented marketing, the business profit depends on its service quality. That
is why the authority always should be aware about their service.
 Strict Supervision must be adapted in case of high risk borrowers. Time to time visit to
the projects should be done by the bank officers.
 The average number of days required for sanctioning and disbursement of credit against
specific loan proposal should be reduced.
 The performance evaluation system is not updated. The organization should follow the
360-degree performance evaluation system. In this case, the superior executives will not
be much rude to the subordinates because the top-level employees’ performance will be
evaluated by the subordinates.
 Selection of borrower shall be made as per rules and procedures of the advances and after
making proper assessment of business establishment, respectability, creditability, actual
requirement of fund repayment capacity etc. Appraisal of feasibility and viability of the
projects shall be done in proper manner examining all the factors by an efficient and
qualified appraiser so that no difficulties are faced at any stage of the project from
construction to production stage.
 The bank should not always be very much sensitive of recovery of loans and will not
bring necessary pressures for recovery provided the borrowers are incorrigible and
habitual defaulters. The lenders shall not resort to any hasty decision and take legal action
against the borrowers if there is any scope for recovery of the dues on compromise terms
even by allowing some concession of interest and rescheduling the repayment program
by allowing reasonable time to the borrowers.
 Problem of the borrower’s projects or business, which have turned sick unavoidable
circumstances of unforeseen events, shall be looked into sympathetically by the lending
bank. If necessary, bank shall not hesitate to allow further finance to revive the sick unit
to ensure safe recovery of the loan in future for which a suitable repayment schedule may
be prepared in consultation with borrowers.
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 The lenders shall take legal action against the incorrigible defaulting borrowers who are
avoiding payment on flimsy grounds without bonafide intention to square up their dues
without wasting of time. Money suits & criminal cases filed against the bad borrower
shall be closely followed up for early decision of the court and immediate steps shall be
taken for satisfaction of the decrees against the judgment debtors.
 Alertness and education amongst the sub-conscious about their obligation to return
bank’s money in time and utilization of funds of funds only for productive purpose of
motivation and education field assistants of the lending bank may play vital role.
 Highly efficient employee should take responsibility for loan and advance section.
 CIB report should maintain properly.
 Documentation about loans should maintain properly.
 The lenders shall sanction and disburse loan to the borrowers in proper time of
investment. They will see that no delay is caused in completing formalities and processes
which may create problem to the borrowers to divert funds elsewhere or want of scope
for investment and thus the funds become stuck up ultimately. So loans should always be
sanctioned & disbursed in proper time of investment to ensure recovery of the loan in
time from the borrowers.
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6.3 Conclusion
Banking sector of Bangladesh consists of several nationalized and private banks. They are doing
their activities and highly contribute to the national economy. Among them IFIC Bank Limited
also makes significant contribution to the economy. They are performing their activities, as a
result not only the bank but also the economy is benefited. The bank is performing general
banking, Loan-advance, foreign exchange activities etc, as a result they are mobilizing the
money and do well for the economy. Although they have some limitations in their services, they
are doing tremendous job for the economy. If they can reduce their limitation and introduce new
ideas, they can do better in the banking sector of Bangladesh.
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CHAPTER 7:
APPENDIX and
REFERENCE
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APPENDIX
CC (hypo): Cash credit-hypothecation
CC (Pledge) : Cash credit-pledge
SBL: Small business Loan
FDR: Fixed Deposit Receipt
STD: Short Term Deposit
TT: Telephonic Transfer
DD: Demand Draft
PO: Pay Order
KYC: knowledge about your customer
FDD: Foreign Demand Draft
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REFERENCES AND BIBLIOGRAPHY
1. Annual report of IFIC Bank 2011.
2. Manual and brushier of International Finance Investment & Commerce Bank Limited.
3. www.ificbd.com.
4. www.bangladesh-bank.org/
4. Credit manual of IFIC Bank.
5. Working policy of IFIC Bank
6. Financial institution and Markets, Jeff Madura, 9th ed.
7. Dr. A. R. Khan -“Bank Management”, Progati Prakashani, 2nd Edition.
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